To offer a payroll giving service the scheme administrator must set up a contractual arrangement with a Payroll Giving Agency. Agencies may charge an administration fee, which could either be paid by the scheme or be deducted from the member’s donation.
Setting up such an arrangement would require additional administration work on the part of the scheme administrator. These costs and complexities mean that, even if you conclude that payroll giving is a suitable option for your client, it may be challenging to find a pension provider who will facilitate it.
Gifting after death
Charities can be the recipients of an authorised lump sum death benefit payment from a pension scheme. If the member was aged 75 or over when they died, or if the member was under 75 but the payment was not designated until more than two years after the date the scheme were aware of (or should reasonably have been aware of) the member’s death, the payment will be taxable. As a charity is set up as either a trust or a company, it is a non-qualifying person, and tax will be charged at the special lump sum death benefit charge rate of 45%.
However, if certain conditions are met the lump sum may be paid as a charity lump sum death benefit. A charity lump sum death benefit is paid tax free, so the special lump sum death benefit charge does not apply.
A charity lump sum death benefit may only be paid from money purchase arrangements. It can be paid following the death of a member of a money purchase arrangement where:
- there are no dependants of the member; and
- the member has nominated the charity as a beneficiary
If the member leaves no dependants, but has not nominated a charity, a lump sum cannot be paid as a charity lump sum death benefit. The lump sum also will not qualify if the member has nominated a charity but there is a living dependant.
On the death of a beneficiary who is a dependant, nominee or successor under a money purchase arrangement, a charity lump sum death benefit can be paid where:
- there are no living dependants of the original member at the time of payment; and
- either it is paid to a charity nominated by the deceased member or, if the member did not nominate a charity, it is paid to a charity nominated by the deceased beneficiary.
Whether or not the deceased beneficiary had any dependants is not relevant.
Since 6 April 2016, it has been possible for charity lump sum death benefits to be paid from both uncrystallised funds and funds which have been designated to drawdown. Prior to this, a charity lump sum death benefit could only be paid from uncrystallised funds if the member was aged 75 or older when they died.
Importantly, if death occurs before age 75, payment of a charity lump sum death benefit is not a benefit crystallisation event. Any part of the deceased’s pension paid as a charity lump sum death benefit therefore will not be tested against the lifetime allowance. This could be useful if the member expects to have funds which would cause their lifetime allowance to be exceeded.
